July 22, 2008

Anyone who has had major medical experience in the past thirty years or so knows there is a big difference between what gets billed for medical services and what providers accept from insurers as payment in full. Health insurers typically have negotiated rates with hospitals, physicians and other providers, so while, for example a $100,000 billing is sent to the patient and the insurer, $30,000 of this is paid by the insurer and the rest is written off. Under Hanif v. Housing Authority (1988) 200 Cal.App.3d 635 and Nishihama v. City and County of San Francisco (2001) 93 Cal.App.4th 298, when a plaintiff has medical insurance, damages are limited to the amount actually paid or incurred, not the greater amount billed by the medical provider. It is an article of faith among defense lawyers that if a plaintiff wins a personal injury case at trial, his or her medical specials will be the amount paid by the insurer, not the amount billed by the provider.

The recent case of Olson v. Reid (2008) ___Cal.App.4th___ (Fourth Dist., G038478) shows how easy it is for a defendant to mess this up and get stuck for the amount billed instead. And perhaps even more significantly, an unusual concurring opinion makes a powerful case that Hanif and Nishihama were wrongly decided, and that an insured plaintiff should recover the full amount billed, not just the amounts paid by insurance. More after the jump.

Olson v. Reidwas a routine, mid-sized personal injury case. Before trial, plaintiff moved to admit evidence of the full amount her providers had billed for treatment, $62,475. Defendant moved to admit only the amounts paid, "which will be verified when the subpoenaed documents arrive in court." The trial court, following Nishihama, denied the defense motion and granted the plaintiff's motion, allowing evidence of full medical expenses and indicating the reduction would be handled on post-trial motions.

After the trial, the defendant filed a motion to reduce the jury's verdict so that it would reflect amounts actually paid for medical treatment, rather than amounts billed. Here is how the Court of Appeal described the evidence in support of the motion:

In support of the motion, Reid submitted a 22-page bill from Anaheim Memorial Medical Center (AMMC). Page 20 of that bill includes the following line item: “ADJ – MHIPA CAP ADJ” and in the amountcolumn, “46,270.05-.” The next line item reads: “ADJ – MHIPA CAP W/O” and “8,024.15-.” The “Total payments & adjustments” is listed as “55,094.20-.” The page also includes handwritten notes from an unclear source.

Based on this, the trial court reduced the judgment by $57,394.24, and the plaintiff appealed. The Court of Appeal reversed, based on the insufficiency of defendant's evidence to support the reduction. "The cryptic notations the court relied upon may reflect payments, or write-downs or write-offs; we cannot know, and if any evidence revealed the actual facts, they are not present in the record." Furthermore, according to the Court's footnote: "We entirely discount the handwritten notes on the bill. Their provenance is unknown. The notes, therefore, are without foundation and simply have no evidentiary value."

In other words, the defendant would have been entitled to the reduction, but didn't submit enough evidence to support it. But the really interesting thing here is the lengthy concurring opinion by the acting presiding justice Moore, who also wrote the majority opinion. According to Judge Moore, Hanif and Nishihama were wrongly decided and resulted in the burial of the collateral source rule "without the dignity of any services or parting words."

Without statutory authority or the Supreme Court’s blessing, the Hanif/Nishihama line of cases divorced the collateral source rule from the complicated area of medical insurance. Absent such approval, Hanif/Nishihama simply goes too far. I therefore decline to jump on the bandwagon by endorsing this procedure.

In his concurrence, Justice Moore makes the following argument: the collateral source rule holds, in its simplest form, that evidence that a party plaintiff has received insurance proceeds for some of his or her losses is not admissible. The theory is that the plaintiff paid the insurance premium and she, not the defendant, should receive the benefit of that prudence. The Hanif and Nishihama cases, so goes the argument, are in direct conflict with the rule, because they result in the defendant getting the benefit of the negotiated reimbursement between provider and insurer, a benefit which only exists because the plaintiff (or the plaintiff's employer, or somebody) was sufficiently prudent to pay for insurance.

As a concurring opinion, this has no binding effect, and trial courts throughout the state are still bound to follow Hanif and Nishihama. But this looks like an invitation for a plaintiff in another case to directly attack these decisions at the Fourth District Court of Appeal when the record is better for the defendant. In fact, it looks like an out-and-out advisory opinion that this district will, in the right case, issue a decision holding that the plaintiff recovers the amount billed, not just the amount paid.